Fidelity is much more than a fund shop. That is the quickest conclusion that one draws when reviewing the fund giant's financial results. Though a privately-owned firm, it released an earnings statement to shareholders this week, as it does every year. This year's version reveals a bottom line that shrunk 39 percent from a year ago. Don't interpret that figure the wrong way, though, 2001 was Fidelity's second best year ever after 2000.

The decline in profits was mostly due to the bursting of the Nasdaq index and the resulting decline in both asset values and trading volume in its brokerage business. Both events are outside of the control of Fidelity executives.

The report does reveal that Fidelity is a more diversified business than many of its fund rivals. Less than half of its revenues are asset-based. Fidelity has been building business in fee-related areas, such as employer services, which help to buffer the firm's revenues against unpredictable investment markets.

In all, the Boston Behemoth reported a bottom line of $1.33 billion, a drop of roughly $800 million from the $2.17 billion profit it earned in 2000. The firm's revenues also fell, declining more than 11 percent to $9.8 billion from $11.1 billion in 2000. That decline and the accompanying fall in profits squeezed the firm's margins to 14.5 percent from 19.5 percent a year ago.

None of these declines should worry Ned Johnson too much however. All of the firm's vital signs are looking good and seemingly stronger than a year ago. Despite the fall in retail brokerage trading, for example, the number of accounts at the firm grew by 11 percent in the past 12 months.

While assets under management fell 4 percent to $883 billion, net fund sales (a more important long-term metric) more than tripled to $39 billion for the year. Last year Fidelity attributed tepid new sales to an ineffectual marketing campaign. It would seem that it is back on track.

Don't expect Fidelity to make more cuts. While the firm trimmed a few positions over the past year, it says that it plans no additional cuts from its 31,400 jobs. Being essentially a family run business, the firm is viewing the current down market as an opportunity to consolidate its gains from the decade of plenty.  

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